How the mirage of GST refunds has left exporters in dire straits
It seemed like a perfect plan. But on the ground, the picture is very different.
As the GST portal stumbles through crashes, glitches, and an assortment of problems operating in sync with other databases, exporters have been left high and dry. Between July 2017 and May 2018, exporters were owed INR20,000 crore in refunds for the paid integrated GST (IGST) and input tax-credit claims, according to the Federation of Indian Export Organisations (FIEO).
"Liquidity is a major area of concern, particularly for MSME exporters, who constitute the bulk of exports in high employment-intensive sectors," FIEO said in its press release on May 29.
The government contested this claim in its own press release a day later.
What’s the delay?
Exporters, custom-house agents, chartered accountants (CA), and lobbyists in export councils say the GST infrastructure is simply not ready. Besides this, there is little consensus on what exactly is causing delays in refunds, and the answers vary depending on who you ask. ET Prime's on-ground research points at the following main culprits.
How the mirage of GST refunds has left exporters in
dire straits
Even almost a year after
its rollout, GST continues to create heartburn for exporters. They simply
aren’t getting their tax refunds.
22 Jun 2018a Getty Images
It all
started on July 1, 2017, as the government rolled out the goods and services
tax (GST). Things were supposed to be simple and seamless with not too many
taxes — at least that’s how the story was sold. Firms exporting goods from
India were told to pay GST on the products they exported and later claim a
refund. They also had the option to export without paying GST using a letter of
undertaking.
It seemed like a perfect plan. But on the ground, the picture is very different.
As the GST portal stumbles through crashes, glitches, and an assortment of problems operating in sync with other databases, exporters have been left high and dry. Between July 2017 and May 2018, exporters were owed INR20,000 crore in refunds for the paid integrated GST (IGST) and input tax-credit claims, according to the Federation of Indian Export Organisations (FIEO).
"Liquidity is a major area of concern, particularly for MSME exporters, who constitute the bulk of exports in high employment-intensive sectors," FIEO said in its press release on May 29.
The government contested this claim in its own press release a day later.
What’s the delay?
Exporters, custom-house agents, chartered accountants (CA), and lobbyists in export councils say the GST infrastructure is simply not ready. Besides this, there is little consensus on what exactly is causing delays in refunds, and the answers vary depending on who you ask. ET Prime's on-ground research points at the following main culprits.
§ Systems aren’t ready
"We have over a
crore in GST returns stuck," says Akar Gosrani, managing partner at Atlas
Metal Industries, which exports cable glands and earthing accessories. "We
are an MSME (medium and small enterprise), but we’re managing somehow."
His company has an annual turnover of INR35 crore.
Why are the refunds stuck? Among other trifling whims, the GST network or GSTB is known to generate errors for characters like hyphens used in naming invoices.
"When the switchover to GST happened, we started paying GST and claimed it later when goods were exported. But when we submitted details, the system showed errors because we used to name our invoices as EXP-01 and so on," Gosrani explains.
"GST returns of the first three to four months are still stuck because of these errors and later due to EGM (export general manifest) issues at ICDs (inland container depots) and ports. Apparently ICDs can't file EGMs because there is no facility," Gosrani adds.
Why are the refunds stuck? Among other trifling whims, the GST network or GSTB is known to generate errors for characters like hyphens used in naming invoices.
"When the switchover to GST happened, we started paying GST and claimed it later when goods were exported. But when we submitted details, the system showed errors because we used to name our invoices as EXP-01 and so on," Gosrani explains.
"GST returns of the first three to four months are still stuck because of these errors and later due to EGM (export general manifest) issues at ICDs (inland container depots) and ports. Apparently ICDs can't file EGMs because there is no facility," Gosrani adds.
§ Coordination between customs, tax, and invoicing systems is
broken
With the GST, the paperwork
trail has gotten longer. According to a senior official with an exporters'
council, export firms now must file return claims with the GSTN. These claims
are then tallied with the customs-department filings. Once a refund is
sanctioned, it is disbursed to the beneficiary exporter’s account via the
Public Finance Management System (PFMS), a central government body which
monitors all money paid to the taxpayers and citizens under various benefits
schemes.
"The addition of the PFMS is a new complication in the tax system," the official says on the condition of anonymity. "Most exporters had no idea what PFMS is, because it is mostly used for transferring benefits under schemes like MNREGA."
Which means exporters had not set their bank accounts and other paperwork right with the PFMS to ensure that they got their refunds. What’s more, until October last year, the PFMS was still being set up to make IGST refunds to exporters. Even now, according to the official quoted above, many exporters need to sort out their paperwork with the PFMS.
That's not all. If taxes are paid on time, they often take a day to reflect on the GSTN site. That means payments made on the day of the deadline reflect as late payments the next day, and a late fee is tacked on to the original amount, according to a CA working with exporters and importers in Mumbai.
ICEGATE, the customs portal that processes export paperwork, does not communicate well with the GSTN. "When an exporter pays IGST on a shipment, it will reflect on the GST portal, but not on the ICEGATE portal," the CA quoted above says.
"The addition of the PFMS is a new complication in the tax system," the official says on the condition of anonymity. "Most exporters had no idea what PFMS is, because it is mostly used for transferring benefits under schemes like MNREGA."
Which means exporters had not set their bank accounts and other paperwork right with the PFMS to ensure that they got their refunds. What’s more, until October last year, the PFMS was still being set up to make IGST refunds to exporters. Even now, according to the official quoted above, many exporters need to sort out their paperwork with the PFMS.
That's not all. If taxes are paid on time, they often take a day to reflect on the GSTN site. That means payments made on the day of the deadline reflect as late payments the next day, and a late fee is tacked on to the original amount, according to a CA working with exporters and importers in Mumbai.
ICEGATE, the customs portal that processes export paperwork, does not communicate well with the GSTN. "When an exporter pays IGST on a shipment, it will reflect on the GST portal, but not on the ICEGATE portal," the CA quoted above says.
§ The GSTN doesn’t let you correct mistakes
According to custom-house
agents and CAs who work with exporters, the biggest problem with the system is
that it doesn’t have an option for companies to correct basic mistakes.
"Let's say an exporter accidentally says he is approved for a Special Economic Zone, or gets some other registration detail wrong. Right now, there is no way for them to correct their details in the GSTN. Government officials are telling my clients to apply for a new registration altogether," says the Mumbai-based CA quoted above.
Exporters and CAs seem to be prone to committing errors. The export-council official quoted above says cases coming to the council include extremely large errors. "In one case, the CA had listed a number of goods as zero rated (with 0% GST) even when they were not," the official says. "In another case, an entry for INR2 lakh was mistakenly written as INR2,000. This kind of errors is unacceptable".
The solution? "Special refund fortnights"
"Until Diwali, the government was like, numb. No one would respond to queries, and the exporters were also lax. Then, there was a jolt, and the pressure on the government began building," the export-council official quoted above says.
Since March, the government has begun releasing some pending refunds. "About 50%-60% of pending refunds are back with the exporters," the official claims.
Yet, it took a long time to get there. In March, under pressure from frustrated exporters and organisations lobbying for them, the Central Board of Indirect Taxes & Customs (CBIC) held "special refund fortnights" that invited exporters to have their errors fixed on the spot. The promise? "Officials will strive to clear GST refund applications." It was advertised as a "golden opportunity."
"Let's say an exporter accidentally says he is approved for a Special Economic Zone, or gets some other registration detail wrong. Right now, there is no way for them to correct their details in the GSTN. Government officials are telling my clients to apply for a new registration altogether," says the Mumbai-based CA quoted above.
Exporters and CAs seem to be prone to committing errors. The export-council official quoted above says cases coming to the council include extremely large errors. "In one case, the CA had listed a number of goods as zero rated (with 0% GST) even when they were not," the official says. "In another case, an entry for INR2 lakh was mistakenly written as INR2,000. This kind of errors is unacceptable".
The solution? "Special refund fortnights"
"Until Diwali, the government was like, numb. No one would respond to queries, and the exporters were also lax. Then, there was a jolt, and the pressure on the government began building," the export-council official quoted above says.
Since March, the government has begun releasing some pending refunds. "About 50%-60% of pending refunds are back with the exporters," the official claims.
Yet, it took a long time to get there. In March, under pressure from frustrated exporters and organisations lobbying for them, the Central Board of Indirect Taxes & Customs (CBIC) held "special refund fortnights" that invited exporters to have their errors fixed on the spot. The promise? "Officials will strive to clear GST refund applications." It was advertised as a "golden opportunity."
Two such drives have
already been conducted — one in March and the other in May-June. More such
special fortnights are expected, where customs agents and GST officers offer to
work on Saturdays and Sundays to manually fix errors in the applications and
the system.
However, how much progress the government has really made on refunds is still unclear, with the government’s own claims fluctuating wildly.
Here’s an example:
"At the end of the second special refund fortnight on June 16, 2018, INR6,087 crore IGST refund has been sanctioned," the Ministry of Finance tweeted on Wednesday, adding that state, Centre, and IGST refund claims totalling INR38,062 crore have been sanctioned so far.
That’s more than FIEO’s claim of INR20,000 crore that the government disputed just two weeks ago.
In the meantime, exporters continue to suffer
The first blow is the loss of working capital.
Like Gosrani's export firm in Mumbai, many other MSME exporters are seeing their working capital shrink as they use lines of credit and other savings to pay GST without much refund in sight. The problem is compounded because a firm cannot file the next set of GST applications if the GSTN says previous taxes have yet to be filed.
"This means, the exporter keeps paying IGST every month so that he can stay in business the next month, but does not get anything in return," the CA quoted above says.
“I have met exporters who have put their offices, their factories on mortgage just to make IGST payments,” says the export-council officer quoted above. “Most MSME exporters are in bad shape, many have been ruined. It was a bad Diwali for everyone last year.”
Nearly 70% exporters saw business grind to a halt by October last year, the official says.
Panic increased as the government took little action in November and December last year.
A previous ET Prime story ‘Importers still yearn for their lost LoU’ showed how a combination of factors has led to the drying up of credit, especially for MSMEs and those involved in exports and imports. “There is no money in the market,” says a custom-house agent in Mumbai. “I had an INR35 lakh overdraft facility that was increased to INR70 lakh against some company papers. How is that even sufficient? I draw that facility in one or two days.”
Domestic supply constraints and cash-crunched exporters are now taking their toll on the volume and value of some of India’s largest export categories. Data from the International Trade Centre shows large dips in the value of exports across the spectrum. The worst hit industries are textiles, apparel, and gems and jewellery. But then, these sectors are highly unorganised and have always had a bad track record of tax and regulatory compliance.
This leaves us with another unanswered question: Where will the GST mess leave the government’s war cry — Make in India?
However, how much progress the government has really made on refunds is still unclear, with the government’s own claims fluctuating wildly.
Here’s an example:
"At the end of the second special refund fortnight on June 16, 2018, INR6,087 crore IGST refund has been sanctioned," the Ministry of Finance tweeted on Wednesday, adding that state, Centre, and IGST refund claims totalling INR38,062 crore have been sanctioned so far.
That’s more than FIEO’s claim of INR20,000 crore that the government disputed just two weeks ago.
In the meantime, exporters continue to suffer
The first blow is the loss of working capital.
Like Gosrani's export firm in Mumbai, many other MSME exporters are seeing their working capital shrink as they use lines of credit and other savings to pay GST without much refund in sight. The problem is compounded because a firm cannot file the next set of GST applications if the GSTN says previous taxes have yet to be filed.
"This means, the exporter keeps paying IGST every month so that he can stay in business the next month, but does not get anything in return," the CA quoted above says.
“I have met exporters who have put their offices, their factories on mortgage just to make IGST payments,” says the export-council officer quoted above. “Most MSME exporters are in bad shape, many have been ruined. It was a bad Diwali for everyone last year.”
Nearly 70% exporters saw business grind to a halt by October last year, the official says.
Panic increased as the government took little action in November and December last year.
A previous ET Prime story ‘Importers still yearn for their lost LoU’ showed how a combination of factors has led to the drying up of credit, especially for MSMEs and those involved in exports and imports. “There is no money in the market,” says a custom-house agent in Mumbai. “I had an INR35 lakh overdraft facility that was increased to INR70 lakh against some company papers. How is that even sufficient? I draw that facility in one or two days.”
Domestic supply constraints and cash-crunched exporters are now taking their toll on the volume and value of some of India’s largest export categories. Data from the International Trade Centre shows large dips in the value of exports across the spectrum. The worst hit industries are textiles, apparel, and gems and jewellery. But then, these sectors are highly unorganised and have always had a bad track record of tax and regulatory compliance.
This leaves us with another unanswered question: Where will the GST mess leave the government’s war cry — Make in India?
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